A walk across Bell Helicopter’s headquarters reflects a company in transition. Moving from drab, aging office buildings to an impressively light and glassy new employee cafeteria, the company’s ongoing revitalization effort is on display.

Bell Helicopter, a division of Textron Inc. (NYSE: TXT), plans to break ground in October on a new corporate headquarters, which is part of a $235 million project to rebuild the campus and consolidate most of its North Texas operations.

The campus project is part of a multiyear, $1.2 billion modernization investment for the 77-year-old company, which employs about 7,000 in North Texas and accounts for $4.4 billion per year in economic impact in Fort Worth. By improving its business systems and research and development, the company aims to win back commercial market share that it lost to foreign competitors and support its military helicopter products in the face of federal budget uncertainty.

“It’s a substantial investment in engineering, our business systems and now the facilities,” said John Garrison, Bell president and CEO. “In order to win in a hyper-competitive marketplace, you’ve got to have the best talent on the planet, and the best talent on the planet wants to come to a place that’s inviting, that’s modern and provides the tools and equipment you need to be successful.”

Bell’s helicopter sales are split with 65 percent coming from military sales and 35 percent from commercial sales.

Bell’s market share in the commercial market fell from about 30 percent in the 1990s to 17 percent in the mid-2000s, according to numbers from New York-based EarlyBirdCapital. Meanwhile, France-based Eurocopter, which formed in 1992, won over 50 percent of the market in the 2000s.

“Strong international competitors, frankly,” Garrison said in explaining Bell’s slide in the commercial market. “They came in with product offerings that convinced the customers to buy their equipment.”

Garrison declined to release Bell’s market-share statistics, but he said the company began to reverse its slide about two years ago. He noted product improvements to Bell’s various commercial models, such as adding a new glass cockpit to the 407, a single-engine helicopter.

“With the investments we’ve made in products, the investments we’ve made in our sales and marketing teams, we’re clawing back market share, but we’ve got a long way to go,” Garrison said.

Relentless advancement

Bell is developing a new commercial helicopter, the 525 Relentless, a 16-seater with a host of technological advancements. The company has targeted late 2014 for its first flight. Garrison said Bell is marketing the 525 to customers in offshore oil production, search and rescue, government and international VIPs.

“There was a gap in the marketplace at this super-medium space,” Garrison said. “We believe designing for that space gives us flexibility so we’ll be able to pull customers up from the traditional medium space and pull customers down from what they call the heavy space.”

Chuck McGuire, managing director of Dallas-based Avstar Finance LLC and a former employee of Bell and Textron, said Bell fell behind in the commercial market partly because of its focus on its tiltrotor programs and military products. The introduction of the Relentless is a major development for the company, McGuire said.

“I think it’s a key concept to re-instill Bell into a perceived market leadership position. They had to do something new. It couldn’t just be a product evolution,” McGuire said. “It’s the largest helicopter in Bell’s segment with new technology, new everything. ... They had to make that statement.”

Defense contractor challenges

When it comes to the military market, Bell is completing a significant ramp up of its V-22 Osprey production — a joint project with Boeing — for the U.S. government. The company’s V-22 deliveries increased from 20 in 2009 to a scheduled 40 in 2013. Deliveries of the H-1 military helicopter also have increased, from nine in 2009 to a scheduled 28 in 2014.

Revenue rose concurrently, up 24 percent from 2009 to $3.5 billion in 2011, the company reported.

Bell has V-22 and H-1 delivery contracts through 2014, meaning the company should be able to keep those projects even if the federal government allows automatic budget cuts to take effect in 2013. Known as sequestration, the cuts include $55 billion from the defense budget in 2013 and up to $500 billion over the next 10 years.

“Assuming there’s no breaking of any contracts, we’re in pretty good shape really through 2014,” Garrison said. “The impacts that Bell would begin to feel, if sequestration goes into effect, we would begin to feel in 2015, and right now, we don’t know what that looks like. Anybody that’s related to the U.S. government defense business has a high degree of uncertainty right now associated with sequestration.”

“The business environment for major defense contractors is extremely challenging,” he said. “There’s a great deal of uncertainty in how budget cuts will play out. … The potential for an additional $500 billion in sequestration cuts through FY2021 is causing serious business disruption.”

In the face of such uncertainty, Garrison said Bell Helicopter is focusing on the opportunities of growing its commercial sales and expanding military helicopter sales to countries beyond the United States. Bell also has expanded the footprint of its service and support business with the recent opening of new facilities in Prague and Singapore.

“We believe Asia Pacific will grow and ultimately overtake Europe to become the second-largest helicopter market in the world (behind the United States),” Garrison said. “We think there’s some opportunity there.”

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